IPTI | Update on U.S. & EU Property Tax Issues: June 2022

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

United States

Texas: Property value protests set new record

Property owners left dazed and confused after getting their Notices of Appraised Values in the mail this year reacted predictably. They filed a record 167,869 protests this year, Chief Appraiser Marya Crigler told the board of Travis Central Appraisal District in a meeting Tuesday.

That’s up by nearly 28,000 protests from the number filed in 2021, she said. Crigler said 75 percent of the protests were filed by agents on behalf of property owners, and 25 percent by individual owners.

Despite the leap in numbers of protests filed the chief appraiser said she was optimistic that the tax rolls will be certified by July 19th, providing local governments with the critically important data needed to prepare annual budgets and set tax rates for the coming year. Last year was the first time since 2018 that TCAD and the Travis Appraisal Review Board (ARB) accomplished that feat. (The ARB is a separate legal entity independent of TCAD’s control but dependent on TCAD for its budget and administrative support.)

Crigler said TCAD will now allow property owners or their agents to set their own dates for conducting informal protests with staff appraisers, rather than getting an assigned date and time from TCAD, as in the past. She encouraged owners and agents to “get in line early” for informals but added, “We anticipate that a ton of people” will apply at the very last minute. “We’re trying to be as accommodating as possible.”

Informals will be offered through June 30th. Instructions for how the process works is provided on the TCAD website. To achieve certification requires settlement of 90 percent of the total value of all properties that TCAD appraises, so the target is about $403 billion. To reach that goal, owners or their agents must either accept the property value that TCAD assigned, resolve their protests through informal consultation with staff appraisers or through formal protest hearings conducted by the ARB, or by “Top Line” agreements struck with agents.

Top Line agreements, formally known as Joint Motions to Dispose of Protests and Request for Agreed Orders, were critical to on-time certification last year, as the Bulldog reported in great detail. The strategy for accomplishing on-time certification is for TCAD and the ARB to focus first on high-value properties and work downward, Crigler said. Even if certification is accomplished on time, settling all remaining protests may take until late September, she said.

The ARB hearings should start in earnest about June 21st with both in-person and remote hearings to start with 25 three-member panels. As the market value of individual properties grew, so did the total value of all properties appraised by the district. The preliminary value totaled more than $447.3 billion in 2022, up from $322.9 billion in 2021. That’s an increase of 38.5 percent in a single year.

A press release issued previously by TCAD stated attributed the growth to a “56 percent increase in residential properties, a 54 percent increase in commercial properties, and $5.8 billion in new construction.”

A 20-year history of appraisal roll values from 2002 through 2021 included in the meeting materials shows the previous biggest jump in total values in a single year was 20.32 percent in 2018, when the total was $245.3 billion. At the opposite extreme, the year-to-year totals actually decreased by 4.09 percent in 2003 and by 4.51 percent in 2010.

The funds to operate the appraisal district and the ARB are funded by the 136 taxing jurisdictions that TCAD services. Charts shown in the meeting materials show that school districts collectively pay for 52.2 percent of TCAD’s budget, cities 19.25 percent, and Travis County 15.85 percent. Central Health pays 4.96 percent and Austin Community College paid 4.13 percent. The remainder is collected from a variety of smaller organizations.

Materials supplied in support of the board’s June 7th meeting state the proposed budget for 2023 is $25,683,866. That’s an increase of $2,897,756 over TCAD’s current year budget of $22,786,110, or 12.72 percent. TCAD has not yet prepared a draft budget. A budget workshop held Tuesday was conducted to discuss priorities, needs, and get board feedback that will be used to shape the draft, said TCAD Communications Officer Cynthia Martinez.

The draft will be ready in about two months, she said, and the board will schedule and hold a public hearing before a budget is approved. The chief drivers of increases in the proposed 2023 budget are expected to be personnel costs, which are projected to rise 16.37 percent to $9.5 million, and legal services, estimated to increase 74.38 percent to $1.6 million. TCAD was involved in 1,654 property value lawsuits in 2021, according to a chart in TCAD’s proposed budget. The total value of properties involved in those lawsuits is slightly more than $50 billion.

Speaking of personnel costs, the board of directors approved an across-the-board 3 percent, cost-of-living pay increase effective July 1st. That will cost less than $300,000 for the remainder of 2022, said Deputy Chief Appraiser Leana Mann. The district budgeted for 143 employees in 2022 and currently employs 116 people, according to meeting materials. TCAD has job postings for 20 vacancies, of which 13 are for appraisers and six are in customer service. The proposed budget for 2023 calls for adding 10 more positions.

TCAD uses seven contractors from Capital Appraisal to provide assistance on mass appraisals but continues to struggle to find qualified applicants as it competes with companies like Amazon, which has 1,635 open positions in Austin, and Tesla. It hired consulting firm Pearl Meyer to conduct a professional salary survey that led to the proposal to increase the entire pay system by 3 percent for a cost of living adjustment.

The proposed budget calls for increasing the auto allowance for appraisers from $6,600 to $8,400 per appraiser per year to bring it up to what’s paid by all but one other appraisal district. TCAD attempted to host its first-ever live streaming of a board meeting via the Swagit system that’s long been used by the City of Austin. The Swagit system will include an archive of video files for future board meetings.

“We had technical problems today,” Martinez told the board. “The sound system should be better in this room and for people watching us from outside.” Given the technical glitch, remote viewers were switched to using Zoom for Tuesday’s board meeting. The result was a split-screen video presentation in which the board members were displayed in a panoramic manner at the top of the screen and the key staff members and podium for a speaker were a blur across the bottom.

On another positive note, the agency has created an email address for direct communication with TCAD board members: BOD@traviscentral.org. Because of fears that email address will be overrun, Martinez said, emails will be filtered and messages routed to customer service or the taxpayer liaison if appropriate.

The chief appraiser heaped praise on Martinez before the communications officer made her board presentation on communication and outreach that included improvements since she joined TCAD in September 2019. (Her entire presentation is included in the meeting materials.)

TCAD netted a Public Information Program Award from the International Association of Assessing Officers in 2021 and has made vast improvements since the Bulldog in December 2019 published a scathing review of flubbed surveys and a pathetic reach through social media platforms.

This year, TCAD’s online webinars have reached more than 26,000 people, according to Martinez’ presentation. Videos for five recent webinars are available for viewing, covering a variety of topics of interest to property owners.

Pennsylvania: How the pandemic, progressives, and property assessments are fueling a debate over Philly’s taxes

Almost everyone says Philly’s tax structure needs to change. There’s less agreement over how. City leaders are engaged in the most substantial debate over Philadelphia’s tax structure in years.

Mayor Jim Kenney has proposed accelerating cuts to the city’s unusually high wage tax, while City Council members are focused on property tax relief. Progressives are pushing for a new city “wealth tax,” while the Chamber of Commerce pushes for business and wage tax cuts. And some observers are questioning fundamental assumptions about how the city collects revenue.

Council members and the administration are negotiating over the city budget that begins July 1. Given that many of those involved are pulling in opposite directions, it is possible that next year’s tax structure will look a lot like this year’s. But it won’t be the end of the debate, with potential candidates for next year’s mayoral and Council races staking out their visions for how the city should be funded.

There are several reasons taxes have taken center stage this year after recent budget cycles, which focused on how the city would survive the economic downturn at the beginning of the COVID-19 pandemic and how it would fight the gun violence crisis.

The first citywide property reassessment in three years has prompted lawmakers to prioritize how to soften the impact of rising real estate taxes. The city’s progressive movement is aiming to stake out a left flank of a debate that has long been dominated by centrist-minded solutions. And the coronavirus pandemic has changed the economy, with the increase in work-from-home threatening the already-fragile wage tax, and an infusion of federal aid giving the city wiggle room in its budget.

“It’s terrible that the pandemic is the thing that gets us to focus on this, but it’s a positive side effect,” said Paul Levy, who leads the Center City District, which promotes the success of downtown and was central to the last major push to reshape Philly’s tax structure. “That’s what’s forced this debate, and that’s good.”

Next year’s mayoral race, for which five Council members are considering a run, will see the divide over taxes reach new levels. Councilmembers Derek Green and Allan Domb, for instance, believe lowering the wage tax will foster job growth, and would likely make business-friendly policy solutions a central campaign theme if they run. Councilmember Helen Gym, meanwhile, is part of the progressive push to reorient the city’s focus away from tax cuts and toward investing in social services. And technocratic Councilmember Maria Quiñones-Sánchez wants to continue her work reforming the business income and receipts tax.

But first, Council and the administration will hash out a compromise over tax policy for the next city budget in closed-door meetings that are ramping up now. They must reach an agreement by the end of June.

In 1939, Philadelphia became the first city in the country to enact a wage tax. It was supposed to be a temporary measure to see the city through the Great Depression, but it stayed on the books and became the root of a tax system unique among major U.S. cities.

Philadelphia’s 1.3998% property tax rate — of which 55% goes to the school district, and 45% to the city — is lower than most local governments. Its wage tax rate — 3.8398% for city residents, and 3.4481% for people who work in the city but live outside of it — is the highest among big cities.

In this year’s $5.6 billion budget, the city projects it will take in $719 million in property tax revenue and $1.5 billion from the wage tax. This year, Kenney is proposing reducing the wage tax rate for city residents to 3.7% over two years, while addressing rising property assessments by increasing the homestead exemption from $45,000 to $60,000, and adding funding to programs that help low-income Philadelphians hold on to their homes.

Council will likely go further on property tax relief, potentially increasing the homestead exemption to the legal maximum of $90,000, and some members are less eager to take a significant chunk out of the wage tax.

No major proposals on the business income and receipts tax have been made public, but business groups are pushing Council to lower or reform it. Critics of the wage tax say it pushes jobs to the suburbs and subjects the city budget to unnecessary volatility because it is more responsive to economic ups and downs than property taxes. A succession of Philadelphia mayors beginning with Ed Rendell has followed a policy of small annual cuts to the wage tax, but it remains the highest in the nation.

The wage tax and the city’s proclivity for enacting new levies — in the last 10 years alone, Philadelphia has created new taxes on cigarettes, sugary beverages, and construction — have turned the notion that Philly is a high-tax city into conventional wisdom.

But progressives are now challenging that assumption. Marc Stier, director of the left-leaning Pennsylvania Budget and Policy Center, in April published an analysis in the Philadelphia Citizen showing that the city’s overall tax burden is in the middle of the pack when compared with peer cities.

At $4,302 per person, Philadelphia’s annual tax burden ranked 13th out of the 30 largest U.S. cities, Stier found. Past analyses showing Philly with extraordinarily high tax collections, he wrote, failed to take into account Philadelphia’s status as both a city and county.

Levy responded with an essay of his own, arguing that it was misleading to focus on the per-capita dollar value of the city’s tax burden instead of tax rates that drive businesses out of the city. In many ways, the writers were talking past each other: It is true Philadelphia has an unusually high wage tax rate, and it is also true Philadelphia overall is not one of the most highly taxed cities.

A new group called Tax the Rich PHL wants city leaders to focus on better funding services instead of making the city more business-friendly through tax cuts. Led by Arielle Klagsbrun, who managed Councilmember Kendra Brooks’ historic 2019 win for the Working Families Party, the group is backing Brooks’ wealth tax proposal, which would capture up to 0.4% of Philadelphians’ direct holdings in stocks and bonds.

While the tax appears unlikely to pass this year, progressives are hoping it helps to reset the debate with a vision for what progressive taxation could look like in Philadelphia.

Strangely missing from the discussion is the Tax Reform Working Group, which was convened last year by Kenney and Council. Jim Engler, Kenney’s chief of staff, said the group met several times but failed to reach consensus.

“It was really good to have those discussions and have a shared understanding of the challenges that we face, but when you have these discussions, I don’t know that there’s really one perfect answer,” Engler said.

Debates over Philadelphia’s tax structure tend to scramble ideologies. Levy and the business community, for instance, have long lobbied for a substantial reduction in the city wage tax rate despite the tax being a major reason Philadelphia has a regressive tax structure. He even helped lead a major push to replace wage tax revenue with an increase in commercial property taxes.

Due to the Pennsylvania Constitution’s “uniformity clause,” which requires all taxpayers to be treated equally, Philadelphia cannot enact a progressive structure for the wage tax by taking a greater percentage from high earners, as the federal government does with the income tax.

That means low-income workers pay the same percentage of their wages as high-earners, placing a greater burden on the livelihoods of the working poor because wealthy people tend to take in more of their income from investments that are not taxed at the local level.

Many progressives, meanwhile, resist calls to cut the wage tax, arguing the city should focus on ways to increase funding for city services instead of cutting taxes. But they are loath to endorse increasing the property tax — which would make the city’s tax structure more progressive, because people with more valuable property holdings would pay more — due to concerns such a hike would accelerate gentrification.

After seeing assessments skyrocket in her West Philadelphia-based district, for instance, Councilmember Jamie Gauthier this year floated the idea of responding by lowering the property tax rate, which could help some homeowners in her district but would disproportionately benefit rich Philadelphians and developers overall.

Gauthier says she’s not actively pushing to lower the rate now but supports a property tax relief package introduced by Councilmember Kenyatta Johnson. The city, she said, needs to focus on growing revenues to fund city services instead of cutting wage and business taxes.

“We’re trying to come out of a pandemic. City services have fallen down over the past two years, and we need to get back to offering high-quality services in an equitable way,” she said. “We need to support our communities, and I think our tax policy has to be looked at through that lens.”

Massachusetts: Boston’s push to tax high-end property sales gets mixed reception on Beacon Hill

Boston Mayor Michelle Wu traveled to the State House Tuesday to make the case for a new 2-percent tax on most real-estate transactions in excess of $2 million, which the city can only implement if the state Legislature gives its blessing and the proposal becomes law.

Wu told the state Legislature’s Joint Committee on Revenue that the tax, which would be paid by sellers and only apply to funds that exceed $2 million, would affect a small portion of real-estate transactions in the city.

“Based on numbers from 2021, this would generate up to $100 million in local revenue to tackle our housing crisis, and would have only affected about 700 property sales in the entire city out of nearly 10,000 transactions, so about … 7 percent affected,” Wu said.

The bill had many supporters from local government and local nonprofits, who say the extra funds are needed for programs that help Bostonians obtain and keep affordable housing. But some from the real-estate industry argued it is the wrong way to go about increasing city revenue, and that it would dampen housing production and have other adverse effects.

Wu preemptively pushed back on the idea that the tax would make it more difficult or desirable for developers to build in Boston. “This is not about increasing upfront costs,” she said. “This is not about adding to the burden as developers are looking to cobble together the permitting costs . … This is adding a very small transaction fee at the point of sale, when the resources are there, to be able to make a huge impact across our city.”

Like Wu, Sheila Dillon, Boston’s housing chief, argued that too many Bostonians are being pushed to the brink by high housing costs. She pointed to a long list of applicants looking to live in the city’s public housing.

“The Boston Housing Authority list exceeds 40,000 households … and many of these households are families with children in our public schools,” Dillon said. “And on any given night we have a thousand individuals living in our shelters or on our streets. And we know that many households that were hanging on … they’ve really suffered economic consequences due to the pandemic, and are no longer able to do so.”

Dillon directly challenged Gov. Charlie Baker’s suggestion that Boston’s recent infusion of federal COVID-relief funds should render the proposed tax unnecessary. “Our housing budget … would double, and this funding would be available to us year after year,” Dillon said. “And while it’s so great to have new federal funding, and the governor has mentioned it, it is one-time funding. We need revenue sources that are available to us year in, year out, as we plan our way out of this crisis.”

The bill that would cement the proposed transfer tax would exempt real-estate transactions between family members. It also would make more elderly Bostonians eligible for the state’s Senior Homeowner Property Tax Exemption, and increase the amount of relief seniors can receive.

State Rep. Brandy Fluker Oakley (D-Boston), the bill’s lead sponsor, said the legislation would help many longtime Bostonians stay in the neighborhoods where they grew up, and that communities of color in particular would benefit. “It would prevent members of communities like mine from being priced out of the housing market and being displaced from neighborhoods where they have lived for decades,” Fluker Oakley said.

Those arguments were echoed throughout the hearing the bill’s supporters, including Mark Draisen, the executive director of the Metropolitan Area Planning Council; Lydia Lowe, the director of the Chinatown Community Land Trust; and Marley Frederique, a senior organizer at the Boston Tenant Coalition.

Support for the proposal was not unanimous, however. Patricia Baumer, the Greater Boston Real Estate Board’s director of government affairs, said Boston could use the existing Community Preservation Act more aggressively to provide new funding for affordable housing.

That mechanism, which Bostonians voted to adopt in 2016, currently imposes a 1-percent surtax on residential and commercial property-tax bills, with the money allocated for affordable housing, open space and other uses. Under existing state law, Baumer said, that surtax could be raised as high as 3 percent, and Boston could be earmarking more of its existing CPA revenues for affordable housing than it currently does.

“[The CPA] was created because it is a stable source of revenue, unlike a real-estate transfer tax,” Baumer said. “Times are good now, but 2008 wasn’t that long ago. The market itself is a very volatile source of revenue. The market goes up and the market goes down.”

Dawn Ruffini, the president of the Massachusetts Association of Realtors, said the proposed transfer tax reflects a fundamental misdiagnosis of what ails the state’s housing market. “The current housing crisis does not derive from a lack of funding, but rather a lack of housing production,” she said.

Ruffini also predicted that, if Boston’s transfer tax becomes a reality, it will make it harder to find a home in the city and “increase income stratification [while] constraining diversity and inclusivity, thereby enforcing preexisting patterns of de facto segregation.” “Transfer taxes will harm our communities,” she said.

The Legislature’s Joint Committee on Revenue currently has a June 31 deadline to take some form of action on the bill.

Ohio: New property tax dispute bill favors developers and owners, limits school districts

On April 21, 2022, Ohio Governor Mike DeWine signed House Bill 126 (HB126), a major effect of which is to limit the ability of Ohio school districts to dispute and appeal the valuation of real property for tax purposes. The enactment of HB126 represents a victory for commercial property developers and owners, who, together with the Ohio Chamber of Commerce, championed its passage. The new law will take effect on July 21, 2022.

The stated purpose of HB126 is to amend Ohio Revised Code Sections 4503.06, 5715.19, and 5717.01 to modify the law governing property tax complaints. However, the specific impact of the new law is to significantly reduce the school districts’ rights to challenge valuations and appeal unfavorable rulings.

Ohio’s current statutory scheme enables school districts to file complaints against property valuation with the county boards of revision. In proceedings before the boards of revision, school districts may present arguments and evidence in favor of a higher property valuation. Under current law, school districts are also free to file complaints to intervene in dispute valuations initiated by property owners who have filed complaints seeking to reduce their assessed property value.

However, under HB126, the board of education for a school district shall not file an original complaint with respect to property it does not own or lease unless both of the following conditions are met: (i) the property was sold in an arm’s-length transaction before the tax lien date for the relevant tax year, and (ii) the sale price exceeds the property value for the relevant tax year by both 10% and a statutory minimum filing threshold ($500,000 for tax year 2022, subject to statutory calculation for tax years 2023 and beyond); the board of education for the school district must first adopt a resolution authorizing the filing of the original complaint at a public meeting of such board.

The school district’s resolution must contain the statutory requirements and, prior to adoption of the resolution, the school district must give the required notice to the record owner of the property. Furthermore, HB126 prohibits the school district from adopting a bulk resolution containing multiple parcels of property, unless the multiple parcels are all owned by the same record owner(s).

HB126 also limits a school district’s ability to intervene in a dispute initiated by the property owner. Under the new law, a board of education may file a counter-complaint only if the original complaint alleges an overvaluation, undervaluation, discriminatory valuation, illegal valuation, or incorrect determination of at least $17,500 in taxable value.

In addition, HB126 applies a time limitation for the adjudication of a complaint filed by a school district. If a board of education files an original complaint, and the board of revision has not rendered its decision within one year after the date of filing, then the board loses jurisdiction to hear such complaint and must dismiss it.

Furthermore, HB 126 prohibits a board of education from entering into private payment agreements with respect to any complaint for valuation. In particular, a school district may not enter into any type of settlement agreement with a property owner whereby such owner agrees to make payment in exchange for the school district dismissing or refraining from filing a complaint or counter-complaint or otherwise resolving a claim under R.C. 5715.19.

Finally, HB126 eliminates certain appeal rights that the school districts previously enjoyed. If a board of education files an original complaint or counter-complaint against valuation under R.C. 5715.19, the board of education may not appeal the decision of the board of revision on such complaint. Accordingly, while the school district may still appeal an unfavorable ruling against the valuation of land that it owns or leases, the school district can no longer appeal the board’s decision regarding the property of another owner.

House Bill 126 makes significant changes to the substance and procedure of existing law concerning property tax disputes in the State of Ohio. Should you have any questions regarding this change, the attorneys at Brouse McDowell are skilled in the practice of real estate and construction law and can assist you with your business’s needs. Please contact our Real Estate and Construction Practice Group for more information.

EUROPE

Germany: The German property tax declaration owners need to know about

Property owners in Germany will have to send the tax office an updated declaration of their property values this year, to help calculate a new amount they’ll have to pay in tax. We explain what they’ll have to do.

People owning property in Germany, from individuals who might own their home to commercial landlords, may have recently come across advisories from tax consultants or media stories, telling them they’ll have to submit a new declaration to the tax office as to their property’s value.

Interactions with German bureaucracy – especially the tax office – can be intimidating, but there’s a few easy steps to follow if you have to declare.

Who has to declare, when – and why?

In 2018, Germany’s highest court declared the country’s current laws on property tax (known as Grundsteuer) unconstitutional, partly because the property values currently used to calculate what an owner owes are seriously out of date. West German properties were last assessed for tax purposes in 1964, and East German ones in 1935.

The constitutional court gave the government until the end of 2019 to come up with a new way of calculating the tax for Germany’s 36 million properties. That’s why owners are being asked to send in new declarations, based on values as of January 1st 2022.

The tax office will then use those declarations to determine what new tax rates owners will have to pay for their properties. Although they may end up having to bear some of costs of higher property tax later, tenants don’t have to declare anything – just owners.

Owners have between July 1st and October 31st of this year to send in updated information electronically to the tax office.

What information do I need?

Each of Germany’s 16 federal states are allowed to have slightly different regulations in the property tax reform, so be sure to check what specific regulation governs you. That said, a few key documents will help you to provide an updated property value to submit.

Extract from the land register (Grundbuchauszug): For people who purchased their property prior to January 1st 2022, this may be the best option to get the most up to date valuation possible that the tax office will accept. The federal government’s dedicated website on the updated property tax declaration also strongly recommends you have this document in particular. You can get this record by making an appointment with your land registry office, or Grundbuchamt. Each individual district, or Bezirk, will have one. You often have to make appointments with them beforehand to request documents, so call them up or email them to request a time.

Last assessment notice (Einheitswertbescheid), purchase contract, or construction documents: A few other documents, particularly for more recent purchases, will help you fill in the declaration. Construction documents may have been included with your purchase contract, and your local tax office will have sent you an assessment notice after you took possession of your property.

These documents will help you answer a few key questions on the electronic declaration, including what year the property was built, its size, number of parking spaces or renovation year. All of these will end up being relevant for the final declaration.

When will the new rate come into effect?

Tax experts say it may take until late 2024 for the new rates to be calculated. The federal government will decide on a base before each individual state may adjust their rate slightly through state law. That’s why it might take some time to tell owners what their new rates will be, with them expected to come into effect on 1 January 2025. Until that date, owners can continue paying what they are currently paying with no changes.

Ireland: Upping business rates will destroy us, Dublin council warned

Dublin city council may need to increase commercial rates in the capital in response to soaring inflation, according to a report to be considered by councillors this evening. The Irish Small and Medium Enterprise Association has warned that the move could push shops that are still struggling after the pandemic to close.

The report by Kathy Quinn, the council’s head of finance, based on talks among the Budget Consultative Group of councillors, said that the local authority’s electricity, gas, and fuel costs are being driven up by inflation. Inflation hit a 38-year high of 7.8 per cent in May. Quinn said that the projected impact of inflation this year will increase the council’s costs by €15 million. Its 2022 budget is €1.1 billion.

“There is a clear need to maximise buoyancy in Dublin city council’s rate base so as to avail of the maximum income base,” she said. “The BCG is reviewing all income sources and potential for charging increases. It should be noted that commercial rates have not been increased in three years and are a key source of funding, representing 32 per cent of DCC’s funding base.”

Neil McDonnell, chief executive of Isme, said that an increase in commercial rates — a form of property tax on businesses such as shops, offices, factories, hotels, and bars — would hurt local and small businesses still “trying to find their feet” after the pandemic.

McDonnell added: “The streets of Dublin are already littered with shuttered shops. This would hurt small and domestic businesses while multinationals will be fine. I think the council, if it considers this, needs to know that this will only add on top of business’s problems rather than help them. More costs will only close more businesses.”

He added footfall in Dublin has not returned to pre-Covid levels as office staff have not been incentivised to return to the office, meaning that while weekends are busy, weekdays in the city are “still very quiet”. Local authorities should focus on restoring vibrancy to cities and towns and supporting businesses, especially hospitality facing staff shortages, McDonnell said.

Joe Costello, deputy lord mayor of Dublin, said that “now is not the time” to consider an increase in rates. Costello added: “The goal is to increase footfall in the city. In general we need to make the city an attractive place to be, whether that’s for tourists or for locals.”

The Labour north inner city councillor said that balancing the local authority’s budget should not fall onto businesses still recovering from Covid-19 restrictions. “Yes, we will have to look at finances, but restoring Dublin and its businesses is a vital part of that. An increase to rates in the recent future is not the right move,” Costello said.

The council said in a statement yesterday that changes in commercial rates were the responsibility of elected councillors and rates would be set at the council’s statutory budget meeting, which will take place in the autumn.

United Kingdom: M&S warns online sales tax will damage High Street

Marks & Spencer has written to the chancellor warning that an online sales tax would damage the High Street.

A three-month government consultation on whether to introduce an online sales tax closes on Friday. The Treasury said the proceeds would go towards funding a reduction in business rates for shops. But M&S believes a new online tax would “punish” the very retailers it plans to support and leave them less money to invest in High Street stores.

The chain’s chief financial officer, Eoin Tonge, argued in the letter that traditional retailers have worked hard to diversify and grow their online sales. He said an additional tax burden would make it harder for them to invest in what is needed to survive and grow in the modern, digital era.

“Introducing an additional tax on retail – already overburdened – will simply mean retailers cut their cloth accordingly,” he said. “This rationalisation will always start with the least profitable parts of a business – which, in the case of multi-channel retailers, will more often than not be High Street stores,” said Mr Tonge.

“Therefore it is likely that, far from helping the High Street an online sales tax will damage shops and our high streets further, particularly in areas that require new investment to bring them back to life.”

The Treasury has been sounding out the retail industry on an online sales tax since February saying it is keen to hear the arguments for and against, as well as how it could work. It said no decision has been made.

High Street retailers have been complaining for years about the soaring cost of business rates, a property based tax. They tend to pay far higher rates than online rivals who do not have stores to run. They want a complete overhaul of the system, which they say is no longer fit for purpose, threatening the economic viability of shops.

Despite widespread calls for a revamp, the Treasury decided last year there was no case for fundamental change. The tax raises roughly £25bn a year. The government said it was reducing the rates burden by some £7bn this year to support the High Street. But it promised to look at an online tax. According to the consultation document, an online sales tax of 1% could raise about a billion pounds per year to help reduce business rates in England. The issue is complicated, however, and retailers are divided on the idea.

What counts as an online sale? For a start, there are questions over which goods should it cover, and whether it should be done as a proportion of a retailer’s sales or a flat fee. Then there is the issue of what counts as an online sale. Many people, for instance, order via the internet and then collect in store.

Some of Britain’s biggest retailers, including Tesco, Sainsbury’s, Gregg’s and Morrisons, recently joined forces to launch a “Cut the Shops Tax Campaign” urging the government to reduce business rates to help mitigate rising costs and keep shops open. They also said they’d be “open” to an online sales tax if it funded a reduction in rates to help create more of a level playing field.

The debate over how best to tax this sector has become even more intense during the pandemic, said KPMG’s UK head of retail, Paul Martin. “The way we shop has evolved significantly over the last two years with online channels growing the fastest. This has resulted in the need to reconsider how the sector is taxed, with the historic focus on bricks and mortar not timely anymore,” he said.

He believes the future for retailers involves having both online and physical stores in a completely integrated model. Therefore the idea of having separate taxes is not likely to solve the problems. Right now all of the UK’s big High Street retailers want the pressure to ease on business rates. The government will soon have to decide if an online sales tax is the right way to do it.

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org
• Carlos Resendes, Director | cresendes[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.